Tax Impications for Accepting Rent with Cash or Check

[Billy Borus]

Hi everyone, new investor here, with my first property (house hack). I admit I have not studied as much about taxes as I studied other aspects of REI, so I'm trying to learn as much as I can, before tax season.

I bought a SFH September of last year, with the intention of house hacking, and eventually moving out, while having the upstairs and downstairs as 2 separate, rentable units. My girlfriend moved in with me, and her dad just sold his house and moved into the basement. We have a great relationship (otherwise I would not have offered it up to him), and it has already been a huge help with him being here for a week. He has the tools, plenty of experience with being handy, and has been great to bounce ideas off of, to get the basement fully rentable as a separate unit from the top, where we live. He is close to retiring, and is trying to decide whether he wants to retire up to Illinois, where all of his family is (including his son and granddaughters), or stay down here, where his daughter is. I say all this, to give a brief background into this house hack.

My question is, from a tax standpoint, does it make more sense to accept checks or cash from him, for rent? I want to be able to write-off as much of the expenses I've incurred fixing up the house, as I legally am allowed. I know it's easier, from a paper trail standpoint, to accept checks. Is claiming the income with checks the only way I can write-off some expenses related to the property, or can I do it with either method, and a paper trail?

Thanks!

[Basit Siddiqi]

@Billy Borus

Regarding cash or check - it doesn't matter from a tax standpoint. You are required to report all income regardless of what form(Cash, check, zelle, quickpay, venmo, etc)

Regarding the house-hack situation

House hacking makes your tax situation more complex.
You purchased a property that is treated as both an investment property and a personal residence. As such, payments that you make need to be prorated between business deductions and personal deductions.

Payments that you make normally fall into one of 3 buckets
100% of the payment can be factored in somewhere on the return
Partial payment can be factored somewhere on the return
0% of the payment can be factored in somewhere on the return

House-hacking also has considerable tax implications in the event that you want to sell this property.

You can potentially defer a portion or all of the gain on the investment property with 1031 exclusion.
You can potentially exclude a portion or all of the gain on the personal residence with section 121 exclusion